3 Top Oil Plays

06/02/2011 2:00 pm EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Those expecting $1.50 gas in six months better wake up...the recent dropoff in crude was only a temporary, moderate correction. In this exclusive interview with MoneyShow.com, Roger Conrad of Utility Forecaster shares his three picks for when oil resumes its longer-term climb.

Roger, as you know, as we’re speaking there’s been a lot of turmoil in the energy pits. We’ve seen Brent Crude go up to $127, and I think West Texas went up to about $114, and then they’ve sold off since. The exchanges have increased the margin requirements on both oil and gasoline. What do you see over the next few weeks and months in this sector?

Well, I think the most important thing for investors to keep in mind is that this is a long-term bull market driven by increasing demand—particularly from the emerging markets, the developing world.

And it’s punctuated by the lack of cheap new supplies. Right now, you can’t just go and dig a hole somewhere in Texas, a conventional well, and expect to come up with oil as you were in days past. You’ve got to go underneath the ocean floor, or you have to go to the tar sands—which is basically a mining operation and a chemicals operation as well as a drilling operation.

So, these are factors that are immutable. They’re well in place. Along the way, though, we’re going to see plenty of ups and downs. We saw a big one in 2008 when oil spiked to $150 briefly.


Came back down all the way to a little bit under $30. Then, of course, embarked on an uptrend over the last couple of years. So, this is the type of market that that is. It’s going to be a lot of volatility.

But I think that what you want to keep in mind is:

  • it’s a long-term market
  • when we do see a lot of hype and a lot of prices going up, as we did in the wake of the Middle East turmoil and so forth, it’s usually not going to be a permanent move

I look at that—the pullback in oil—as another opportunity to take a look at good stocks that you might want to own, and wait until we get to some good prices and take advantage.

So, how low do you think oil is going to go on this particular correction—you see it as a correction, obviously—how low do you think it will go this time around?

Well, we could get down to around $90, or possibly even lower. I mean, I think that’s immaterial other than the fact that the lower it goes, it will shake more people out of the stocks.

So, we might get a better opportunity to buy our stocks. Good energy producers that are increasing their production profile—in other words, increasing reserves and finding new places to invest, that’s an excellent place to be.

The key is getting it at the right price.

So, can you name one or two of those that you like?

Well, I really like Chevron (CVX) from a super-oil standpoint, but I want to see it come back down to the level of $95...in that range. [CVX closed just under $105 on Tuesday—Editor.]

I like…if you’re looking for smaller companies, Penn West (PWE) is a smaller company. They have a very large inventory of properties and potential wells to drill.

They also have a couple of unusual alliances. One is with the China Investment Corporation, a sovereign wealth fund, to develop what could be a very promising oil-sands property that they own.

Any others?

Well, I think that if you’re going for oil—obviously that’s the part of the market that’s been strongest—there are a lot of companies. The main thing is, you don’t want to overpay.

If you’re going for gas, which has been a very weak part of the market, you want to go for companies that have been increasing their production. Then again, Canada I think is a good place to go, because you can get dividends paid in Canadian dollars, which will appreciate with the Canadian dollar. That, of course, gives you double play on resources, because the Canadian dollar follows oil.

Companies like ARC Resources (AETUF)…this is a company that has increased gas production, and thereby increased its earnings going forward. Whether gas prices go up or stay where they are, they’re making money. That’s the name of the game.

Do you own any of these either personally or professionally?

I do own Chevron. I have since it was Texaco. I’m a very strong believer in that company’s ability to generate wealth for investors over time.

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